$6 Billion NCR Opens Bitcoin Purchases To 650 Banks And Credit Unions
650 U.S. banks will soon be able to offer bitcoin purchases to an estimated 24 million total customers. As part of the deal, between enterprise payments giant NCR and NYDIG, the sister company of $11 billion Stone Ridge Asset Management, community banks including North Carolina-based First Citizens Bank and credit unions like Bay Federal Credit Union in California will be able to offer their clients cryptocurrency trading through mobile applications built by the payments provider.
Instead of having to deal with the burdensome regulatory issue of actually holding the cryptocurrency for their customers, the financial institutions that opt to make the service available will rely on NYDIG’s custody services, generating revenue by charging cryptocurrency transaction fees and providing additional investment services.
The effort is the latest by Atlanta-based NCR, to capitalize on demand it’s seeing from banks and credit unions tired of seeing crypto-purchases made from their accounts to outside exchanges. By providing these clients a way to buy bitcoin — and eventually spend it — within their existing accounts, the move puts these institutions in direct competition with cryptocurrency exchanges.
“We’re firm believers in the benefits of crypto and the strategic application,” says NCR president of digital banking, Douglas Brown. “And that’s true for our banking relationships, as evidenced by NYDIG, and across retailers as well as restaurants and the like.”
Founded in 1884 as the National Cash Register, NCR employs 34,000 people and does business ranging from digital banking services to ATMs and restaurant point-of-sale kiosks, in 160 countries. From January to March 2020 the company’s stock tanked 62% to $13.43. Then, riding a similar tide as Paypal and many other financial technology service providers since the Covid-19 pandemic forced many banks to close down their physical branches, NCR’s stock has jumped 238% since March 2020, when quarantine started and is now trading at $45.44. NCR generated $6.2 billion in revenue from non-crypto currency transactions last year.
In addition to its work with the financial sector, NCR is the largest provider of point of sale software to grocery and other retail stores globally, with a 45% market share, according to research firm RBR. In total, NCR serves 180,000 restaurants, retail chains, and more, including Fifth Group Restaurants in Georgia and Metropolitan at the 9 hotels in Ohio — all of which could eventually be opened to bitcoin payments if everything proceeds according to plan.
In May, the 135-year-old organization partnered with New York-based crypto-payment firm Flexa to let customers of Altoona, PA_based convenience chain Sheetz’s 600 stores pay for gas and other goods with bitcoin, ether, litecoin, dogecoin, and more. Now, he says “dozens” of NCR’s banking and credit union clients have come to them complaining that their customers were using their savings to buy bitcoin and other cryptocurrencies.
Instead of losing those assets to third-party cryptocurrency exchanges — or sending nasty notes to their clients saying they don’t condone the purchases — they decided to capture that value by providing the services on their own. “A lot of these banks have seen that one of the biggest outflows from their depositors is moving money from the bank to exchanges like Coinbase,” says Stone Ridge co-founder Yan Zhao, who joined NYDIG as president in December 2020. “And so that’s part of why banks are so excited to have this capability for themselves and for their consumers.”
Phase one of the NYDIG partnership will let NCR’s banking clients buy, sell and trade bitcoin and other cryptocurrencies from their mobile application. While the purchaser will feel like they’re working directly with the bank to make these purchases, on the backend, the actual assets will be custodied by NYDIG. When a customer wants to buy bitcoin it is sourced from various regulated OTC desks and exchanges and sold at a slight markup based on the size of the trade and other factors. NYDIG in turn receives a per user per month fee from the bank. “I think you’ll see cheaper transaction fees through the banks than what you have today in the marketplace,” says NYDIG’s head of bank solutions, Patrick Sells. “But the banks do get to determine what they want that transaction fee to be.”
In addition to being able to charge for investment advice, Brown expects the banks will likely follow a similar playbook as PayPal. In the months after the payments giant started letting its customers buy and spend bitcoin, it saw a 100% increase in the rate those customers visited the app, increasing the opportunity to sell them other products. “Banking today is a daily or a couple of times a day activity for people, which is what we typically see,” says Brown. ‘Crypto gets to an hourly or sub-hourly level of deepening engagement.”
While U.S. banking regulator, the Office of the Comptroller of the Currency last year gave banks the right to custody the private keys that give customers access to cryptocurrency on behalf of their clients, NCR bank clients won’t need to worry about that at all. NYDIG itself says plans to hold the exact amount of assets its clients buy in an off-line, cold-wallet, custody environment. “Every dollar of customer bitcoin is actually bitcoin that is held in custody, in trust, for the customers,” says Zhao.
Brown says that phase two of the implementation could see NCR eventually custody its own assets. It is also exploring non-crypto currency applications of blockchain and other distributed ledger technologies to help it execute complicated transactions that involve many counterparties. In spite of years of false starts among other retailers who made crypto payments available — only to see few people will to actually spend the assets — NCR’s chief technology officer Tim Vanderham is among the second wave of executives working with nearly 200,000 restaurants and other retail clients to help them accept payment in cryptocurrency, Brown says. Future projects are also expected to include making bitcoin purchases available via the ACRs 800,000 ATMs and more.
“We have the broader ambition to do a multitude of things with crypto that will extend into our multi-vertical markets, retailers, and restaurants,” says Brown. “And then other capabilities oriented around digital banking.”
NYDIG was founded in 2016, as New York Digital Investment Group, a way for Stone Ridge and its employees to store their bitcoin and another cryptocurrency offline. Shortly after launching the firm expanded to include basic services like trade execution, and by 2020 was offering crypto-accounting services, financing and derivatives support and new ways to analyze trade data. The application programming interface (API) that allows third parties to build into the stack of bitcoin tools didn’t go live until this year, triggering an onslaught of new business.
The firm has grown from 51 employees in January to 190 today. It is not sharing revenue numbers.
As of February 2021, NYDIG was custody $4 billion in crypto assets, including at least 30,000 bitcoins, valued at $1 billion, owned by its parent company, Stone Ridge Holdings Group. Just a month later the assets under management had grown to more than $6 billion, and the firm has since quietly amassed banking infrastructure partnerships it estimates lets them off bitcoin services to approximately 70% of U.S. banks.
According to a December 2020 survey of 3,898 US consumers from Cornerstone Advisors, 60% of cryptocurrency owners would use their bank to invest in cryptocurrencies. But only about 2% of banks were very interested in doing so. Since then, that seems to have changed, with JPMorgan Chase & Co., Goldman Sachs, and Morgan Stanley all taking tentative steps towards accepting bitcoin.
While skeptics of the incredibly volatile cryptocurrency — which reached an all-time high of $64,500 in April, only to drop by 50% in days — remain in full force, NYDIG and its banking partners, FIS, Fiserv, Q2 Holdings, and Alkami Technology today took out a full-page ad in the Wall Street Journal in an effort to bring bitcoin to a more mainstream audience.“Those five partners,” says Sells, “are the piping of the global financial system. And so it’s nothing but excitement to think about bitcoin, the asset, bitcoin, the rails, and what in combination and collaboration we can do together.”